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SCHIP: Big Pharma Falls Into Line with Big Government – Pacific Research Institute

SCHIP: Big Pharma Falls Into Line with Big Government

The Wall Street Journal confirms the depressing news that the brand-name pharmaceutical industry has been “collaborating” with advocates of a government take-over of health care. Apparently, it has given $13.2 million to an “astroturf” outfit, “America’s Agenda: Health Care for Kids”, to produce and run advertisements stroking 28 Congressmen (of which 25 Democrats) for having voted in favor of roping more kids into SCHIP (State Children’s Health Insurance Program), a law whereby Congress funds states’ programs.

A year ago, I joined several colleagues in communicating the harmful effects of SCHIP, which divides families, increases government dependency, and further fragments American health care. This was around the time President Bush vetoed SCHIP expansion, and Congress nearly overrode the veto.

Next time, we may not be so fortunate. After all, our merry band does not have $13.2 million to spend on feel-good ads to elect politicians who will vote for good public policy!

On initial inspection, Big Pharma’s policy of appeasement looks like the world’s most expensive suicide note. After all, they are well aware that a Democratic-controlled Congress and White House will move quickly to impose direct price controls on prescription drugs for all government programs.

Aren’t they? I mean, they are not stupid. Perhaps there is something else going on. Let’s try to figure it out.

SCHIP is closely related to Medicaid, the mostly federally funded, state-run program for low-income Americans. Prescription drug purchases by Medicaid have been subject to price controls since 1990. COBRA 1990 (Consolidated Omnibus Budget Reconciliation Act) required that drug makers give Medicaid programs their biggest discounts off list prices. (The Deficit Reduction Act of 2005 changed the method somewhat.)

Research, published in 1997, convincingly demonstrated that this rule had the unintended consequence (and perverse effect) of increasing prescription drug prices to private payers. Research published last year showed that prices for drugs purchased by Medicaid programs increased quite nicely after COBRA 1990, although the changing demographics of the Medicaid population explain some of this.

SCHIP is not Medicaid (and I must confess that I am baffled about whether SCHIP itself is governed by the most-favored-customer clause), but states can choose to execute SCHIP by expanding Medicaid.

So, history indicates that Big Pharma can manage to make money with Big Government health care in the U.S. But where will this industry draw the line? International experience shows that government-monopoly health care is not friendly to innovation or patient access to new medicines.

Big Pharma is buying a place at the politicians’ table – but will it end up as the main course?

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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